S&P upgrades Eletropaulo

Standard & Poor's said it raised to B+ from B the local and foreign currency corporate credit ratings assigned to Eletropaulo Metropolitana Eletricidade de Sao Paulo SA and its $200 million senior unsecured and unsubordinated euro bonds. The Brazil national scale corporate credit rating was also raised to brBBB from brBB+.

The outlook is stable.

S&P said the rating action reflects Eletropaulo's improvement in cash flow protection measures and its quick return to the credit markets, the agency said. By issuing international bonds and the local debentures, Eletropaulo showed an ability to access the credit markets, thus reducing its cost of debt, extending future amortization profile and materially shrinking its exposure to foreign currency denominated debts.

The ratings are constrained by pressure to upstream dividends from 2007 on, a still leveraged capital structure and exposure to the Brazilian electric regulatory framework, the agency said.

These are partially mitigated by improving operating performance since the second half of 2004, lower exposure to currency mismatches, Eletropaulo's financial flexibility, a favorable customer mix and a 30-year monopoly to distribute electricity in Brazil's most developed and densely populated region.

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